Cuccinelli backs off from Star Scientific tax case

SoVaNow.com / April 10, 2013

Responding to public pressure to step away from a legal proceeding involving a political benefactor, Attorney General and Republican gubernatorial candidate Ken Cuccinelli announced Friday that his office will recuse itself from Star Scientific’s tax lawsuit in Mecklenburg County Circuit Court against the state of Virginia.

Cuccinelli announced he would hand off the case to a bipartisan team of Stephen D. Rosenthal, a former state attorney general, and former state Solicitor General William H. Hurd, both with the Richmond law firm, Troutman Sanders LLP.

In an interesting twist, Hurd currently represents five past and present Mecklenburg County school trustees in an unrelated lawsuit against the Virginia State Police. The five won a Freedom of Information lawsuit against the State Police, and are currently negotiating with the Attorney General’s office to recover their costs and attorneys’ fees.

Brian Gottstein, a spokesman for the attorney general, called the decision to hire outside counsel “an abundance of caution” that was needed “to move past what has become an unnecessary distraction for the office and the attorney general.” He repeatedly denied claims that Cuccinelli had a conflict of interest in the case with Star and its chief executive, Jonnie Williams, a friend and benefactor of Cuccinelli’s.

Calls for Cuccinelli to appoint outside counsel in the case began after it was disclosed that Attorney General’s sole listed investment on his economic disclosure form is with Star Scientific. Cuccinelli owns in excess of $10,000 in stock in the company, a fact he failed to disclose until 2012, as required by state law.

Cuccinelli has owned Star stock since 2010, but said he was unaware that his holdings exceeded the $10,000 threshold for reporting on the disclosure form. He made a subsequent purchase of Star stock as part of a stock index investment, pushing his holdings above $10,000. A spokesman said Cuccinelli amended his disclosure form once he became aware that his stock investment exceeded $10,000.

Star Scientific, which formerly operated a manufacturing site in Chase City and owned specially-designed tobacco curing barns in Mecklenburg, filed its tax protest in 2011, days after Cuccinelli made a second purchase of Star Scientific stock.

Star asked the local Circuit Court to correct what the company believed was an erroneous assessment of taxes levied by the Department of Taxation in 2004 on portable tobacco curing barns owned by Star, but given to tobacco growers in Mecklenburg County. The amount of the tax was $707,590.

While the case languished in Mecklenburg County Circuit Court, Cuccinelli reported receiving nearly $13,000 in gifts from the CEO of Star Scientific Jonnie Williams.

However, he is not the only official whose handling of the Star Scientific case has been subject to questions.

At no time since the filing of the initial suit has any official — either the Attorney General or the state tax commissioner — sought to compel Star Scientific to pay the back taxes, post a bond or file a letter of credit substantiating the company’s ability to pay potential tax liabilities.

The Virginia code section under which Star filed its protest calls for “the applicant [Star Scientific] to pay the assessment [or post a bond or provide a letter of credit] before proceeding with its application [legal challenge] upon granting a motion by the Tax Commissioner seeking to compel such payment.”

When asked whether the Tax Commissioner sought payment or financial guarantees from Star Scientific, his spokesperson Joel Davison initially responded, “Why would he do that?” After consulting with the office’s Disclosure Officer, Davison modified his response, noting, “We are not aware of any case in which subsection B of § 58.1-1825 has been invoked by the Tax Commissioner.”

With interest, Star’s tax bill had grown to nearly $1.3 million in 2011. The company, which has reported millions in losses in the past decade, has informed investors that it could face tax liabilities of up to $1.7 million if it loses the case.